Since this time last year, the Dewline Deep prospect on Alaska’s North Slope went from being promising acreage ready for drilling, to being promising acreage ready for drilling.
But over the past year, UltraStar Exploration lost and then regained a lot of momentum on its attempts to drill the Dewline No. 1 exploration well, north of the Prudhoe Bay unit.
First, a move to get BP to operate the well fell through. Then, Brooks Range Petroleum Corp. chose not to participate in the drilling program. Finally, tax revisions enacted late last year created uncertainty about the economics of the well.
By mid-winter, it seemed clear UltraStar wouldn’t drill in 2008. But with a new winter drilling season approaching, UltraStar plans to return to Dewline Deep, according to Jim Weeks, managing member of UltraStar and its sister company Winstar Petroleum.
“The plan is to drill our well as soon as we can get permits and an ice road built,” Weeks said.
Working as the operator on the well, UltraStar plans to build a 1.5-mile ice road this winter and target Dewline Deep using the Doyon Arctic Wolf. The rig is currently stacked in Deadhorse and under contract with FEX, but Weeks believes negotiations are almost complete for UltraStar to use the rig this winter.
Abandoning previous plans for a directional well, UltraStar now plans to drill a vertical well to around 9,900 feet. The Arctic Wolf is capable of around 11,000 feet, Weeks said.
“It’s the safest well we can drill from a mechanical risk standpoint,” Weeks said.
Weeks said drilling vertically would be cheaper as well, helping to offset the extra permitting, metering and connection costs, making the project about even economically.
“If we find hydrocarbon-bearing reservoirs, we’ll test the well and then apply for permits” for a gravel road tying back to Prudhoe Bay infrastructure, Weeks said.
Weeks, a former executive with ARCO, said UltraStar is negotiating with BP for space at the existing processing facilities at Lisburne should his company find commercial hydrocarbons at Dewline Deep, and choose to bring the prospect into production.
Over the past five years, Weeks has advised companies without North Slope production facilities to negotiate a facility sharing agreement before starting exploration. He secured the first such agreement in 2003 before Winstar drilled the Oliktok Point State No. 1 exploration well, but the deal became moot when the well proved to be dry.
Dewline Deep is oil prone
Weeks helped found Winstar in the late 1990s and UltraStar in 2002 with an overlapping group of investors. Today, the companies hold 5,764 acres over five leases, four west of Point McIntyre and one offshore in Gwydyr Bay near Beechey Point.
Following the Winstar dry hole at Oliktok Point State No. 1, UltraStar obtained 3-D seismic covering the leases west of Point McIntyre showing several prospects. The company decided to pursue Dewline Deep, believed to hold between 5 million and 20 million barrels of oil in the Ivishak and Sag River formations.
“We’re pretty sure we’re oil prone, particularly at the Sag-Ivishak level, which is our Dewline Deep prospect. There’s a Kuparuk potential there and at the Kuparuk level there’s a higher potential for gas. … Our risk is whether it’s oil or water,” Weeks said.
Through lengthy negotiations between 2004 and 2006, which included talk of possibly expanding Prudhoe Bay to include Dewline Deep, UltraStar and BP came to terms on a framework for access to the drill site and the use of Lisburne facilities.
UltraStar originally planned to drill the well directionally from Point McIntyre, and BP agreed to operate the drilling program with an UltraStar geologist onsite.
But following a dizzying year of high profile oil spills, tax changes and heightened scrutiny over the maintenance and operation of North Slope facilities, BP eventually pulled out of the Dewline Deep project as well as the move to expand Prudhoe Bay.
New meters solve tax problem
But the real step forward for UltraStar came this summer when state regulators allowed another company on the North Slope to test new technology for measuring oil production.
The ruling from the Alaska Oil and Gas Conservation Commission allows Pioneer Natural Resources to test multi-phase flow meters for measuring production from the offshore Oooguruk unit being processed at facilities in the Kuparuk River unit.
“I think Pioneer did the industry a huge, huge service getting these multi-phase meters used for transfer,” Weeks said.
The testing period runs through the end of October, after which AOGCC will review the data and decide whether to allow the multi-phase flow meters for permanent use.
Traditional flow meters at North Slope oil fields separate production into its various oil, gas and water components, and measure each stream separately. Multi-phase flow meters can measure densities, allowing the stream to pass through comingled and uninterrupted.
This measuring is important not only for managing reservoirs, but also for determining taxes, royalties and sales volumes, both for the state and for companies.
For that reason, Weeks believes multi-phase flow meters could be used to bypass a growing concern among independent explorers related to Alaska’s Clear and Equitable Share, or ACES, a production tax revision passed by state lawmakers last November.
“Under ACES, any revenue to (BP) from facility access fees is considered production revenue… that increases their production taxes,” Weeks told Petroleum News in January.
Grossing up the payments to compensate BP would increase costs by as much as 70 percent for UltraStar, with no guarantees the extra payment would qualify for deductions.
By creating more accurate and continuous measurements for each party, Weeks believes the multi-phase flow meters would allow smaller companies to better measure their own production when using the facilities of another company.
He said the issue becomes particularly important in cases involving Prudhoe Bay and Kuparuk, which have a different tax rate than other North Slope fields.
“There shouldn’t be a reason in the world the Prudhoe Bay unit owners shouldn’t use it because they have the same owners as Kuparuk,” Weeks said.
Weeks said the negotiations over access would “probably set back the time for starting production a year or two, but at least we’re moving forward.”
